EU MELTDOWN: How Italy brought Brussels to its knees, will Brexit talks survive the chaos?

THE European Union is facing a meltdown like never before as rifts start to appear across the bloc driven mainly by the handling of Italy’s populist coalition as Five Star and League attempted to form a government.

Comments from the EU’s budget chief Gunther Oettinger, in which the German said Italians electing populists is “not acceptable”, prompted a rare but furious backlash from the Commission’s most senior eurocrat Jean-Claude Juncker.

The rift caused chaos across Europe as the bloc’s single currency nosedives and bond yields soured. The pound didn’t survive the selloff, falling to a six-month low against the dollar.

With less than two years passing since the British Brexit vote, a new crisis is brewing in Europe and its leaders are seemingly failing to control the spread of a political wildfire.

Mr Oettinger became a target of EU colleagues after telling German broadcaster Deutsche Welle the reaction of financial markets would teach Italians why they should not vote for populist moments.

Right-wing Lega and anti-establishment Five Star Movement failed to form a coalition government in Rome after Italian President Sergio Mattarella rejected their choice of eurosceptic Paolo Savona as finance minister. Instead, Mr Mattarella has instilled a former International Monetary Fund official Carlo Cottarelli as interim prime minister until new elections can be arranged.

Speaking about the populist fallout, Mr Oettinger said: “My concern and expectation is that the coming weeks will show that the development of the markets, government bonds an the economy of Italy will be so far-reaching that this will be a possible signal to voters not to vote for populists on the right or left.

EU news: Brussels threatened by meltdown over Italy statement but will Brexit be hurt (Image: GETTY)

“Already the developments of government bonds, the market value of banks, the general course of the Italian economy is clearly overcast, is negative. This has to do with the possible government formation.”

The German Commissioner’s comments prompted a reaction from the EU’s two most senior officials, Mr Juncker and the European Council President Donald Tusk, who both questioned their colleague’s choice of words.

An earlier translation of Mr Oettinger’s comments suggested

Mr Juncker released a serious statement completely rebuking his budget chief, creating a rare public disagreement between senior members of the Commission.

A statement by Mr Juncker’s spokesman said: “The President of the European Commission, Jean-Claude Juncker, wishes to put on record his conviction that Italy’s fate does not lie in the hands of the financial markets.

“Regardless of which political party may be in power, Italy is a founding member of the European Union that has contributed immensely to European integration.

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“President Juncker is convinced that Italy will continue on its European path. The Commission is ready to work with Italy and responsibility and mutual respect. Italy deserves respect.”

Mr Tusk put out a similar statement he had gone even further by saying the market reaction will “teach the Italian’s to vote for the right but”, but the journalist later explained he had “misquoted” the Commissioner.

He said: “My appeal to all EU institutions: please respect the voters.

“We are there to serve them, not to lecture them.”

Five Star leader Luigi Di Maio said the German’s comments were “absurd” and promised to deliver a “government of change”.

He said: “These people treat Italy like a summer camp where they go to spend vacation.

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“But in a few months we will have a government of change and we will finally get respect.”

Amid the spat threatening to rock Brussels, Mr Oettinger later published an apology for his statement to the German broadcaster, insisting

He said: “By referring to the actual market developments in Italy, I did not mean to be disrespectful and I apologise for this.

“Italy is a founding member played and plays an important role in European integration and I hope it will continue on this path.”

The rift, of course, can have possible ramifications for Brexit as European Union bosses are left to fight on two battlefronts, as described by the Conservative’s most senior MEP Syed Kamall.

He said: “Clearly Brussels will be watching developments in Rome closely and with some concern. However, such euroscepticism is a problem they brought on themselves.

"Britain has not yet left and now another country is giving them a headache. It is too early to say whether it is a good or bad thing for the Brexit negotiations.

“In military terms it is like opening a second front. It will divert attention and energy, but it might also be an encouragement to get on with a Brexit deal before the Italian problem starts taking more and more of the European Commission’s time."

Five Star’s most senior member of the European Parliament has, however, promised to lead a fightback against Brussels and any Brexit “punishments” bosses may be planning.

Fabio Castaldo remains confident enough his party, alongside Leage, will triumph and form a government despite the opposition from President Mattarella.

Mr Castaldo said: “We will come back stronger in the next elections, form a government and start our fight for the EU reforms that are needed for our citizens.”

“We will try to do our best to bring political pressure so that the Brexit process will be fair and there will be no attempt for any kind of punishment of the UK,” he told the Telegraph.